Hancock ups profit in 4Q

Fueled by modestly higher sales and deep cuts in costs, specialty retailer Hancock Fabrics Inc. said fourth-quarter profits climbed by 12.6 percent, to $8.8 million from $7.9 million last year.

But with markdowns and promotions putting heavy pressure on margins, profits came in lower than expected — $0.47 a share vs. a consensus forecast of $0.51 — and an unforgiving Wall Street took it out on the company's stock, pushing it down in value by 15.4 percent, or $2.68, to $14.70 on Feb. 26.

Clipped by heavy promoting, sales grew at a somewhat slower pace during the holiday quarter, to $128.6 million from $123.7 million last year, somewhat off their faster pace earlier during the year. For all of last year, sales grew at a brisker clip of 6.4 percent, to $438.3 million from $411.9 million.

Same-store sales grew by 11.9 percent in the closing quarter, following a 14.6 percent increase a year ago, For all of 2002, same-store sales climbed by 8.3 percent, improving over a year-before gain of 6.3 percent.

Holding up the bottom line, Hancock pared its costs by 270 basis points, or 2.7 percentage points, to 40.9 percent of sales from 43.6 percent a year ago. Measured in absolute dollars, costs were reduced by 2.4 percent, to $52.6 million from $53.9 million, generating a cash savings of $1.3 million.

But taking a bite out of profits, average gross margin, dented by heavy promoting, contracted by 190 basis points, or 1.9 percentage points, to 51.7 percent from 53.6 percent. Gross margin dollars were relatively flat, edging up by 0.3 percent, to $66.5 million from $66.3 million, as rising sales offset lower margins.